Well this is awkward.
Swiss bankers, taking stock of a US government crackdown on tax evasion, have criticized the effort on grounds that it lacked transparency.
First, the background: On Jan. 27, the US Department of Justice said it had concluded the last non-prosecution agreement (NPA) in a string of 80 such deals that allowed Swiss banks to avoid prosecution for helping their customers evade US taxes. The agreements resulted in settlements totaling roughly $1.3 billion.
Switzerland’s bankers apparently found the whole process unpleasant. In a March 30 note on its website, the Swiss Bankers Association—which represents financial institutions based in the neutral mountain nation—had this to say:
Concluding the NPAs was no simple undertaking. Generally, it can be said that the outcome of the regularisation of the past with the US was expensive for the banks. In addition to the fines to be paid, very high administrative and internal costs were generated. Furthermore, the DoJ’s lack of transparency with regards to the calculation of the fines also leaves somewhat of a bitter aftertaste in terms of whether the fines were really always calculated fairly. The DoJ’s program for Swiss banks, however, remained the only practicable way to be able to look ahead to the future.
Of course, lack of transparency is the very foundation of the Swiss banking industry. The Swiss bank secrecy law, passed in 1934, imposed heavy penalties, including possible jail time, for violating the secrecy of Swiss bank clients. The law followed a vast inflow of foreign cash into Swiss banks in the years following World War I, when many nations—France in particular—imposed drastically higher taxes to pay for the conflict and reconstruction. From that base, Switzerland became a sort of black hole of tax-evading wealth.
At their peak, Swiss banks held roughly 6% of all household wealth in Europe.
In recent years, though, Switzerland lost ground to other tax havens, according to French economist Gabriel Zucman, whose handy 2015 book The Hidden Wealth of Nations, provides a concise lesson on the development and economic impact of tax havens.
The Swiss banking industry’s loss of market share is in no small part because of intense scrutiny by the US government under the Obama administration. In May 2014, for example, Credit Suisse pled guilty to charges that it helped rich Americans evade taxes, and agreed to pay roughly $2.6 billion.
Zucman, an economics professor at the University of California at Berkeley, calls the Swiss Banking Association’s response to the clampdown “ridiculous,” telling Quartz via email, “The truth is that many of them have become incredibly rich by stealing the revenues of other government[s]. The price they pay for this today is objectively small, because the European Union (which has 10 times more hidden money in Switzerland than the US) has so far been unwilling to levy fines like the US has.”
While the US is taking the lead in trying to clamp down on tax havens, it should be noted that tax avoidance by the super wealthy is actually a much bigger problem globally, with ungodly amounts of financial wealth from areas such as the Gulf, Russia, and Africa nestled away in tax havens.
In other words, it’s a transparent fact that tax havens—whether in Switzerland or elsewhere—remain a serious problem.